If you believe that Japan's distribution system is inefficient and does consumers no good, try telling that to Masahiro Matsuoka.
According to the managing director and head of equity research at UBS Warburg (Japan) Ltd., wholesalers in Japan -- unlike those in the United States -- actually promote competition among retailers and thus benefit consumers.
"Maybe I have to lecture prejudiced English-speaking people who are writing off Japan's distribution system as a dud," Matsuoka said.
Citing the well-developed and influential local wholesale networks, Matsuoka said there is "not a chance" that foreign distributors will succeed in Japan.
Matsuoka's book, "Tonya-to Shosha-ga Fukkatsu-suru Hi" ("When Wholesalers and Trading Houses Revive"), published in December by Nikkei BP-sha, challenges the widely held "distribution revolution" concept, in which consumers would be better off if retailers bought directly from manufacturers, not through go-betweens.
To make his point, Matsuoka compares productivity in the Japanese and U.S. distribution industries -- both in retail and wholesale.
When compared in terms of labor, Matsuoka's comparison suggests that the Japanese industry is inefficient. Japan's labor productivity -- the value added per worker -- is 30 percent lower than that of the U.S., while the wage per worker is 30 percent higher in Japan than in the U.S.
However, when factors such as floor space and electricity are included, he argues, the productivity level is almost the same in both countries. This implies that value added over each square meter of sales floor in Japan is higher, he said.
Wholesalers have been playing a much bigger role in Japan, where consumers demand a wider variety of goods and retailers must compete more severely for geographical reasons, he said. The wholesalers provide many merchandise items to the retailers, which often do not need to worry about inventory risk because they can return unsold items to the wholesalers.
All this benefits local consumers, unlike in the U.S. or Europe, where retailers do not need to compete as much, he argues, adding that U.S. retail giant Wal-Mart Stores Inc. often enjoys a monopoly over the market.
Why, then, are prices higher in Japan? The author has a simple answer: The prices only seem higher in international comparisons due to the strength of the yen against the dollar. When prices in Tokyo rose against those in New York -- from 1985 to 1988, 1991 to 1995 and 1998 to 2000 -- the yen-dollar rate also went up, he points out.
Despite his overall praise for wholesalers, Matsuoka does not paint a bright future for all. Only competent ones can survive, he notes, pointing out that major firms, including Kokubu & Co. and Ryoshoku Ltd., are consolidating the industry nationwide. Contrary to the book's title, such major wholesalers have been prospering.
Matsuoka does not mince words when speaking about major foreign retailers, including French hypermarket chain Carrefour, that have entered or are considering entering the Japanese market.
"No matter how big they may be in the global market, they have to start in Japan with a single outlet," he said. Since they at first do not have power to deal directly with local manufacturers, they must use local wholesalers.
But wholesalers cannot be sure whether they should deal with the foreign firms in the long run, he said. "Why would they try to provide the best merchandise quickly to such retailers?"
What's more, most U.S. and European retailers tend to try to "rip off" wholesalers and buy from them as cheap as possible, he said, adding, "The wholesalers will surely hate such retailers."
No retailer can succeed in Japan without securing wholesalers' support, he said. The best examples of this, he said, are Seven-Eleven Japan Co., the nation's largest convenience store chain, and Isetan Co., a Tokyo-based department store chain.
"The only way for a foreign firm to succeed (in the Japanese distribution industry) is to buy a major local retailer," he said.
Matsuoka, who was born in 1967, studied economics "diligently" at Tokyo University. As a stock analyst specializing in the retail industry, he said he intentionally avoids doing field work.
"You can't make a 10-minute visit and infer 365 days of 10-hour-a-day business operations," he said, seemingly proud of his philosophy.
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